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+--- Thread: Cisco (CSCO) (/showthread.php?tid=282)
Cisco (CSCO) - Kerim - 11-04-2013
Having sold off some of my Intel, and inspired by thoughts around here about various tech holdings, I decided to have a closer look at Cisco tonight. This is not a company that I’ve followed before, but it is often discussed as a solid dividend growth prospect, and it could help me to diversify the tech portion of my portfolio. Here’s what I found:
Cisco scores a very respectable 67 in my very rudimentary scoring system, earning top marks in many important categories.
With a P/E ratio below 13, and perhaps well below 13 if you look at this year’s projected earnings, it is hard to argue that CSCO is overvalued. Whether it is a bargain at these prices is another question, as tech companies seem to command lower than average multiples these days, probably given the fast-changing nature of the industries.
One (possibly) weak link from a dividend growth perspective is the short history of dividend raises, which currently only stands at three consecutive years (though it looks like it will be four soon). I and many other dividend growth investors like to see a long history of annual dividend raises, signaling that commitment to growing the dividend is part of the corporate culture. But there is another side to this coin that I am starting to appreciate more and more. Short-streak companies may be in a much better position to provide outsized dividend growth. And indeed, that is something that Cisco may be poised to do. CSCO initiated the dividend in 2011, paying out 18 cents that year. They doubled it to 36 cents in 2012, and are on track to pay out 65 cents per share in 2013. By my math, that is a dividend growth rate of over 90 percent. Now, of course I do not suspect the growth rate will be anywhere near that going forward, especially over the long term, but this could be a healthy grower for a while going forward. Especially that the payout ratio, around 30 to 35 percent, leaves plenty of headroom for dividend growth.
Earnings is a bit of a tricky story for CSCO, as I look at it. The five-year earnings growth rate is in the 7 to 11 percent range. But breaking that down a bit, they earned $1.27 in 2007, and then (with some slight fluctuation) earned $1.15 in 2011 – little growth to speak of. But then between 2011 and 2012 earnings boomed from $1.15 to $1.55, and 2013 is going to eclipse the 2012 number again solidly. So the past two years, earnings are indeed growing quickly – a critical metric required for sustained dividend growth.
Finally, the yield is right around 3 percent at the moment. Not spectacular, but nothing to sneeze at, either. Especially if they continue to grow it at a good clip in coming years.
I’ve read several articles lately arguing that Cisco is a real bargain at these prices. I’m not sure about that. I’ve expressed plenty of doubts in various threads here about the role of tech companies in a conservative dividend growth portfolio. I can tell you with confidence what PG or MO is going to look like in 10 or 20 years. Not so much with tech. But I am intrigued by CSCO, and may initiate a small position to replace some of the INTC that I sold.
RE: Cisco (CSCO) - hendi_alex - 11-05-2013
CSCO very strong today, trading at +60 cents at the moment.
RE: Cisco (CSCO) - Kerim - 11-06-2013
Yeah, its been on a tear since I posted that -- I should have put my money where my mouth was!
RE: Cisco (CSCO) - hendi_alex - 11-06-2013
I've got 800 shares but 400 of them are covering Jan $22 calls. Looks like after January the position will be down to 400 shares long. If shares dip, perhaps I'll sell 400 January $22 puts. If put to me, that would provide an entry price of around $21.50 and if not would generate the equivalent of 3X+ dividends for the risk.
RE: Cisco (CSCO) - hendi_alex - 11-13-2013
Perhaps CSCO will give a decent entry price as quarterly earnings missed estimates. Down over 60 cents in after hours trading. I expected a weak report and sold calls against my position today, Feb $24 for $1.08. Looks like those calls will work out for me. If the price gets hammered too much, I may sell a few puts, as I have 400 shares that are covering $22 Jan calls. I'll just watch the price action before deciding for sure. Obviously none of these shares are held in my long term account.
Now down over $2.00. Good thing you held off the other day!
RE: Cisco (CSCO) - Kerim - 11-13-2013
(11-13-2013, 04:56 PM)hendi_alex Wrote: Good thing you held off the other day!
I'm glad too! 10 percent down after hours feels like a real over-reaction, don't you think? They missed by a couple of pennies. By my count, they will still have grown earnings by about 18 percent from 2012 to 2013 -- hardly shabby.
I've read two short articles about the announcement, and I didn't see anything so scary that would account for such a big hit. Did I miss something?
I guessing that by morning cooler heads will prevail and the damage won't be nearly so bad as after hours. If it does open down very hard, might be just the right moment for me to initiate a small position after all. At $22.00, CSCO would be yielding 3.09 percent -- its highest level since initiating the dividend in 2011.
RE: Cisco (CSCO) - hendi_alex - 11-13-2013
They also announced a large share repurchase. I think that the company has some issues where disruptive technologies may eventually affect margins, but CSCO is a large player and is doing a lot to retain customer loyalty. I'll probably stand pat with my 800 shares, and will play wait and see as to whether the 400 shares covering the calls get taken out. Depending upon how that unfolds and how the market treats the share price, may or may not pick up replacement shares.
"Cisco also expanded its share repurchase program by $15 billion, bringing the total authorization for buybacks to $16.1 billion."
RE: Cisco (CSCO) - hendi_alex - 11-14-2013
Decided to play this a.m., just couldn't resist the excitement of the wild price swing.
Added 400 shares at $21.15, well above the low.
Closed 8 covered call contracts, retaining 75% of the original proceeds ($640 net)
Bought 10 Dec $22 call contracts at 21 cents
Am now holding 1200 shares free and clear, but do have a fresh GTC sell for 4 short call contracts at $22 strike against my cheapest batch of shares, $20.50 less call proceeds and a couple of dividends. As of now, the position remains solidly in the green. My bet is that at least for the short term of a quarter or two, that this morning's reaction is over done.
I'll refrain from mentioning these kinds of shorter term trades of such activity if you consider the content to be too far outside the bounds of the board theme of DG investing. Personally, I enjoy seeing what kinds of investing others are doing, whether as trades or longer term investing. But some longer term investors get really put out by trading comments. So just let me know by reply here or via pm if you would like me to only post remarks related to longer term dividend candidates and holdings.
RE: Cisco (CSCO) - Kerim - 11-16-2013
(11-14-2013, 10:45 AM)hendi_alex Wrote: Decided to play this a.m., just couldn't resist the excitement of the wild price swing.
Alex -- I for one do not mind at all hearing about your short-term plays. Not only are they interesting anyway, but short-term and long term are not completely unrelated.
I've said before that core dividend growth investing is ultimately pretty boring -- though satisfying and lucrative.
I scratch my need for action by playing with completely speculative options (as opposed to using calls and puts as part of my DG strategy), though I only risk a few hundred dollars at a time here and there.
I also could not resist the CSCO action, and bought the CSCO Feb 2014 $20 call for $1.70. Sitting at $2.00 now -- and I'm hoping for much higher in short order!
RE: Cisco (CSCO) - TomK - 12-12-2013
Wow, CSCO is down hard again today -- almost 2.5% down at the moment. As I mentioned in this other thread, I am considering upping my exposure to tech, with CSCO as a possible first move. I may take advantage of this drop.
RE: Cisco (CSCO) - hendi_alex - 12-12-2013
At this level CSCO would seem to be a fairly conservative investment. They have about 3X more cash than their debt level. For a tech company the dividend is oversized at about 3.3%. The pay out ratio is about 36%, according to Yahoo stats. The dividend has been boosted four times to almost triple the initial dividend amount in 2011. Where else can a person buy a market leading company at such a discount?
RE: Cisco (CSCO) - ronn38 - 12-13-2013
I'll buy if it goes sub $20.
There's just A LOT of company there, regardless of the headwinds.
Ronn